Questor share tip: Wood Group on track for full year

Wood Group's PSN unit has won another contract extension in the North Sea.
Questor says hold.

Oil service company Wood Group unveiled another contract extension yesterday, safeguarding 100 jobs in the North Sea. This is good news for the company and good news for its offshore workers.

The contract was won by Wood’s PSN division, which provides long-term support for existing oil and gas facilities. The company will continue to provide duty holder and asset management services to the Hummingbird Spirit floating storage off-loading production (FPSO) vessel.

The contract, worth $87m (£57.6m), continues until the end of 2013 with options to extend to March 2015. This news follows a run of announcements on new deals. Last week, PSN announced that it would deliver operations and maintenance services to Hess Corporation’s Baldpate production platform in the deepwater Gulf of Mexico, under a new five-year contract. In April, PSN won a two-year North Sea contract extension with Total. Based on historic turnover, the award is expected to be valued at around $150m.

Indeed, management is upbeat on prospects for the North Sea. The Aberdeen-based group increased its exposure to the region after purchasing PSN in December 2010 for £608m.

Wood’s production support operations offer the prospect of good growth. The group is involved in the US shale regions and said this area of its business was “performing well”, at its annual meeting two weeks ago.

PSN was hit last year by $20m of losses on a contract in Oman, but management say this is being brought under control. “Losses are reducing and we remain confident of achieving a significant improvement in financial performance for the year,” Wood said at its AGM.

Wood also has an engineering division, which management said is performing well. It should grow operating profits as measured by earnings before interest, tax and amortisation, by about 15pc this year.

Its GTS division provides power solutions, engineering and after-market services for turbines in the oil and gas and power sectors.

The GTS maintenance business has been hit by delays to contracts including engine overhauls. However, this work is expected to start later this year and

the division is still expected to put in a full-year result in line with market expectations.

The shares were recently tipped as a buy at 734p and 804½p. Trading on a 2013 earnings multiple of 13.1 falling to 11.5 and yielding a prospective 1.6pc, Questor is comfortable with a hold rating.